July 18, 2014

Microsoft Reduces Workforce to Focus on Breakthrough Phones

A lot has been made of Microsoft's plan to cut 18,000 jobs. The headlines have been dramatic like "Microsoft Employees in Seattle Are 'Shell Shocked' At the Size of the Layoffs," or "Microsoft cuts 18,000 jobs as part of its largest layoff ever." Yet in the end, Microsoft is simply cutting out divisions of Nokia that it purchased last September. So these were "temporary" Microsoft employees that were there under a year. With 12,500 Nokia employee cuts out of 18,000, that equals 5,500 lost longer standing Microsoft jobs which is somewhere in the 5% range of their total workforce. That's a normal range cut for company's experiencing a recession. Microsoft intends to better focus their Nokia phone offering aiming for both economy phones and those aimed at Apple's iPhone and Samsung's Galaxy by 2015.

Earlier today Bloomberg reported that Volkswagen, Europe's largest carmaker, plans to mimic the fast-paced rollouts of products made by the likes of Apple to adapt quicker to changing customer demands for technology in its cars. This was also one of the themes that Microsoft's CEO noted in his memo to employees this week announcing the job cuts. Satya Nadella stated that "First, we will simplify the way we work to drive greater accountability, become more agile and move faster." If Microsoft is to be any kind of market leader in the mobile space in the future, then this shift to being agile and moving faster is the only way they can survive against the likes of Apple.

Microsoft's CEO made it clear that they want to focus their smartphones to higher end markets where the iPhone and Galaxy S5 reside. Specifically, Nadella stated that "The first-party phone portfolio will align to Microsoft's strategic direction. To win in the higher price tiers, we will focus on breakthrough innovation that expresses and enlivens Microsoft's digital work and digital life experiences."

You don't have to be a rocket scientist to know who the main players are that they wish to compete with in the "higher price tiers." Yet if you actually need proof that some in Microsoft are absolutely obsessed with competing against Apple, you don't have to look very far.

In May Panos Panay, Microsoft's Corporate VP for Surface, tried to convince the world that their new Surface 3 was better than a MacBook Air. We covered that keynote in our report titled "Microsoft's New Surface Pro 3 Thinks it's a Notebook." Panos was like a broken record about comparing it to a MacBook Air, even to the point of weighing it on stage to show how much lighter it was than Apple's notebook. With a flimsy plastic keyboard as the Surface 3 tablet cover, what did you expect? Trying to be a magician didn't do Panos any favors for his image as a Microsoft VP.

Yet when Nadella mentioned "breakthrough innovations" in context to future smartphones, I understood to some degree what he was saying because many of Microsoft's higher-end patent filings focus on next generation smartphone features including new smart pens that they want to bring over to the smartphone space and a new live annotation app for Skype addressing their business users. They also have a 3D camera for mobile devices on the drawing board to compete against Google's Project Tango that comes to market in 2015, and many, many more.

"In addition," Nadella added, "we plan to shift select Nokia X product designs to become Lumia products running Windows. This builds on our success in the affordable smartphone space and aligns with our focus on Windows Universal Apps." This contradicts mainstream press thinking. All Microsoft is doing is ensuring that the Nokia line is running Windows and not Android. They're killing their Android teams not the entire project.

A stronger Microsoft push into smartphones at the low end will cut into Android sales and perhaps Samsung sales specifically. A stronger Microsoft push into the higher price tiers with breakthrough innovations will likely hurt Samsung more than it ever will Apple.

As they say, the enemy of my enemy is my friend. So here's to hoping that my new buddy Microsoft can rock the market a little and begin to erode the Android machine's popularity. It's just too bad that Microsoft took so long to wake up.

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